HB 3-STATE LAND SALE; PFD VOUCHER AND ASSIGN.  2:34:56 PM CO-CHAIR TARR announced the final order of business would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 3, "An Act relating to the purchase and sale of state land; relating to discounts for veterans on state land purchases; and relating to the assignment of permanent fund dividends to purchase state land." [Before the committee was the SSHB 3, introduced and referred to the House Special Committee on Military and Veterans' Affairs, committee of first referral, on 3/13/19.] 2:35:36 PM REPRESENTATIVE RAUSCHER, sponsor, explained SSHB 3 would allow utilization of [a person's] permanent fund dividend (PFD) year after year to help cover the payments on the purchase of state land. The state disposes of land in various ways each year and one of them is through a bidding process, he noted. Payment for the land can be outright or through payments. He said the bill would also give a 33 percent advantage to veterans for utilizing in the purchase of state land. Three veterans are co-sponsors of the bill, he added. 2:37:38 PM REPRESENTATIVE HANNAN referred to Section 2 and requested a definition of veteran for use of the benefit proposed in the bill. She further asked whether the definition is for as little as 90 days served in the U.S. military. DARRELL BREESE, Staff, Representative George Rauscher, Alaska State Legislature, answered questions regarding SSHB 3 on behalf of Representative Rauscher, sponsor. He confirmed the definition is 90 days and said the definition can be found on page 2, lines 4-8, which states: "on active duty in the United  States armed forces for [U.S. ARMED FORCES] at least 90 days, unless tenure was shortened due to a service connected disability or due to receiving an early separation upon return from a tour of duty overseas, and has received an honorable discharge or a general discharge under honorable conditions." That definition, he explained, is what is currently in statute for eligibility for the 25 percent discount that veterans are currently eligible for. REPRESENTATIVE HANNAN asked how that compares to other veterans' benefits that the state offers; for example, whether 90 days is a standard threshold. MR. BREESE responded that he didn't know and would get back to the committee with the answer. 2:38:48 PM REPRESENTATIVE RASMUSSEN inquired whether there is a cap on the discount; for example, no matter how much the property costs a veteran would get a discount exponentially. MR. BREESE replied that existing statute currently offers a 25 percent discount to veterans. Section 4 of the bill would, in addition to that, provide a one-third discount. Section 3 of the bill, page 2, starting on line 9, would limit the veteran to using one discount at a time - the 25 percent and 33 percent discount discounts could not be combined - [and each discount] could only be used once in a lifetime. The limit is set at 33 percent, so if the price of the property were $10 the veteran would pay $6.66. CO-CHAIR TARR offered her understanding that if a veteran wished to purchase two pieces of property, he/she could purchase one of the properties at a 25 percent discount and the other at a 33 percent discount so long as the veteran signed up with the mechanism that it be paid through the PFD. So, she continued, there would be an opportunity for a veteran to potentially purchase two pieces of property that a discount is applied to, although one would have to be paid for with a cash payment plan and to receive the other the veteran would have to assign his/her PFD toward payment. MR. BREESE thanked Co-Chair Tarr for clarifying his comments and agreed she is correct. 2:40:51 PM REPRESENTATIVE TUCK stated he doesn't interpret Section 4 as saying that. He said he interprets Section 4 as meaning that if a veteran has already purchased land prior to 8/1/19 using the 25 percent [discount], then the veteran can purchase an additional piece of property at 33 percent [discount], and that from 8/1/19 onward it would only be the 33 percent [discount]. He asked whether his interpretation is incorrect. MR. BREESE responded his understanding is that the 25 percent discount offered under Section 1, which is currently in existing statute, remains unchanged and that a veteran is still eligible to purchase that property at 25 percent off. If willing to assign one's PFD, the limitation is only on land purchased after 8/1/19. So, he continued, if one purchased land prior to 2019 as a veteran, he/she can't then apply the one-third discount to that purchase. The intention is that the one-third discount is not until after 8/1/19. CO-CHAIR TARR requested Mr. Marty Parsons of the Department of Natural Resources (DNR) to provide clarification regarding the 8/1/19 date and how it applies to the two discount options. 2:42:33 PM MARTY PARSONS, Director, Central Office, Division of Mining Land Water and Mining, Department of Natural Resources (DNR), replied his understanding is that after 8/1/19 would be the first opportunity to use the one-third discount of pledging the PFD. CO-CHAIR TARR offered her understanding that the existing program of a 25 percent discount would remain unchanged. MR. PARSONS stated that that is his understanding. He said he doesn't see anywhere in the bill there that is sunset. REPRESENTATIVE TUCK restated his understanding as being that Section 1 allows a veteran to take advantage of the 25 percent [discount] and Section 4 would allow the purchase of new land after 8/1/19, regardless of whether [a purchase prior to 8/1/19] had been taken advantage of. [A veteran] could take advantage of the one-third discount, he continued, as long as he/she [assigned] his/her permanent fund dividend, but it would not be an option if the PFD weren't used. MR. BREESE responded that Representative Tuck's understanding is correct. The one-third discount, he said, is only applicable if all or a portion of [the veteran's] PFD is assigned to help pay off the purchase of the land. He added that Section 4, subsection (g) on page 2, lines 20-21, implies that both discounts are in existence, because it is stated that the [25 percent and the 33 percent] discounts cannot be combined in one purchase. 2:44:45 PM REPRESENTATIVE TUCK posed a hypothetical scenario of himself as a veteran making his first purchase of land after 8/1/19 in which he gets the 33 percent discount because he used his PFD as collateral or payment. He offered his understanding that at a later time he could use Section 1 to purchase another piece of land at a 25 percent [discount]. MR. BREESE answered, "That is the intention of the legislation, correct." REPRESENTATIVE TUCK, regarding the aforementioned hypothetical scenario, asked whether he could use his PFD for that purchase as well or would be restricted from doing so. He further asked why it would be wanted to restrict people from using their PFDs to pay for lands. MR. BREESE replied that the one-third discount for veterans purchasing land is a once-in-a-lifetime opportunity and the 25 percent discount is also a once-in-a-lifetime opportunity. He explained that Section 5 of the bill would allow anyone, veteran or non-veteran, to use their PFD to pay off the purchase of the land. So, yes, if Representative Tuck in the aforementioned scenario purchased the land with a 25 percent discount, he could still assign his PFD for payment under Section 5, assuming the entire dividend hasn't been assigned to pay off the one-third purchase. The dividend would have to be divided up, he said, in order to use it for the purchase of both properties. REPRESENTATIVE TUCK asked why the provision for purchasing land at the one-third discount requires that the veteran's PFD be assigned for payment. MR. BREESE responded that the primary focus of the permanent fund is that [a PFD] be given to everyone in Alaska who wants one. It's a way of securing the [land] purchase because for most of the state land sales the purchase is financed by the state, he said. Using the PFD for payments is made easy because it only requires the checking of a box. It is convenience, he added, and it is also for encouraging veterans to buy land in Alaska. REPRESENTATIVE TUCK surmised that if he were to miss the PFD application deadline, he would not have the 33 percent [discount] available to him. MR. BREESE confirmed that the 33 percent discount could not be used if [a veteran] did not apply for, or was not eligible for, a PFD. REPRESENTATIVE TUCK asked what would happen if his full PFD was garnished. MR. BREESE deferred to the Department of Revenue (DOR) to answer the question. 2:48:46 PM ANNE WESKE, Director, Permanent Fund Dividend Division, Department of Revenue (DOR), responded to Representative Tuck's question. She explained that, if a garnishment occurs, usually the first priority is a garnishment, not a voluntary contribution, or, in this case, an assignment. So, the funds would go to the garnishing agency, she said, and then DNR would be notified that no funds would be processed on [DNR's] behalf. That means it would fall on DNR to collect if DNR had already pre-credited this individual or it would fall on DNR to contact the individual that the funds didn't come DNR's way due to a garnishment. REPRESENTATIVE TUCK stated he doesn't know why it would be wanted to put a condition on the one-third discount for veterans based on whether they file for a PFD. He said he understands why it would be wanted to provide the ability to pay for lands using permanent fund dividends. 2:50:31 PM REPRESENTATIVE HANNAN asked how many veterans have currently taken advantage of the current discount of 25 percent. She further asked for the ratio of the number of parcels for sale each year and the number of veterans who took advantage of them. MR. PARSONS answered that roughly an average of 17 veterans per year take advantage of the current 25 percent discount. Last year, he said, 80 parcels were sold under the state land sales program and 14 or 15 veterans took advantage of it. REPRESENTATIVE HANNAN inquired whether payments to the state for most land sales are monthly payments or annual payments in which a person's PFD would achieve the payment. MR. PARSONS replied there are multiple payment options under which a purchaser can contract with the state annual, monthly, and quarterly - for which the purchaser signs a contract. REPRESENTATIVE HANNAN posed a scenario of $3,000 for the PFD in 2019 and asked whether that amount would cover the annual payment for the average parcel purchased by a veteran. MR. PARSONS responded it depends, because land across the state varies widely in its value. The land is sold at fair market value, he explained, which is determined through an appraisal. Land in Interior Alaska might sell for $13,000 or $14,000 for a five-acre parcel, while a smaller parcel in Southeast Alaska might sell for $30,000 or $40,000. There are cases where $3,000 could cover the entire payment for the year, he said, but in most cases, it would cover a portion of it. MR. BREESE drew attention to page 2 of the DNR fiscal note, which states: "Over 19 years of tracking the 25 percent veterans discount, veterans have purchased an average of 14 parcels of state land a year." He also noted that according to the fiscal note the average price per parcel is $18,300. 2:54:49 PM REPRESENTATIVE SPOHNHOLZ inquired whether an "eligible veteran" as described under Section 1 of the bill must be an Alaska resident. MR. BREESE deferred to Mr. Parsons for an answer, but noted that Section 1 doesn't say an eligible veteran must be an Alaskan. MR. PARSONS replied that the initial auction under which these lands would be sold are for Alaska residents. REPRESENTATIVE SPOHNHOLZ offered her understanding that the one- third discount and being eligible for a PFD isn't a matter of determining that only Alaskan residents are using this benefit. MR. BREESE replied that page 1, lines 13-14, state, "has been a state resident for a period of not less than one year immediately preceding the date of sale". Therefore, he said, [the veteran] would have to be an Alaska resident. 2:56:14 PM REPRESENTATIVE RASMUSSEN asked whether the closing costs for these sales are typically negotiated or whether there is a standard breakdown of who pays what for the closing costs. MR. BREESE deferred to Mr. Parsons for the answer. MR. PARSONS responded that [the land sales program] doesn't have a closing cost. He said the purchaser puts down a bid deposit when the land is purchased and if the purchaser goes into a state contract those payments get rolled into the contract. REPRESENTATIVE RASMUSSEN inquired whether a title is involved with these land sales. MR. PARSONS answered that the unique thing about Alaska land sales is that the title remains with the state and does not pass to the purchaser until the purchaser has completely paid off the purchase obligation. REPRESENTATIVE RASMUSSEN asked how the purchaser has anything to show for the money he/she has put into the purchase if there is nothing in title on record. MR. PARSONS replied that unique to Alaska's land sales program is that there is not equity that the purchaser gains until such time as the purchaser has paid off the entire contractual obligation. The title remains with the state, he said, and is not patented to the purchaser until the purchaser has completely paid off the contract. 2:58:44 PM REPRESENTATIVE RASMUSSEN asked who pays the recording costs and other fees for the change in title once the purchaser has paid off the contract. MR. PARSONS responded that, in receiving the title, there is a cost of $250 to the purchaser for the processing of documents and issuing the patent. REPRESENTATIVE RASMUSSEN noted there isn't a set amount for the PFD and asked whether there is something in place that the purchaser must pay a certain [minimum] amount each year. MR. BREESE answered that under the bill the purchaser can assign his/her PFD to pay all or a portion of the payment due to DNR, so the PFD could cover the full payment or only a small portion of the payment that is remaining. 3:00:28 PM REPRESENTATIVE RASMUSSEN said her concern with the verbiage is that it doesn't set a minimum payment. She suggested this could be covered via an amendment so as to ensure that the state is protected. She inquired about the point at which the state would foreclose for nonpayment, for example if a purchaser's PFD was garnished. MR. BREESE replied that this is not a garnishment, but an assignment of the PFD. He deferred to Mr. Parsons to answer about penalties for late or nonpayment. REPRESENTATIVE RASMUSSEN clarified she was speaking to a purchaser not receiving his/her PFD because it was garnished, and the purchaser was therefore unable to pay. CO-CHAIR TARR asked Mr. Parsons about the timeline for when a contract would become null and void for nonpayment. MR. PARSONS responded it varies. He said the division normally works hard with its customers to get them back on track, so they don't lose their interest in the land. Normally after 90 days, he continued, the division begins a letter writing campaign to get the purchaser back into compliance. Then there is a series of several months during which the division walks through different types of notices until getting to the point where the division writes the purchaser a letter stating that the division directors have decided that the purchaser's contract is void and the purchaser has 30 days to pay the remaining balance or the contract will be cancelled. The division tries very hard not to cancel contracts and take back properties, he added. 3:03:09 PM REPRESENTATIVE RASMUSSEN surmised there is nothing in statute that says at a certain point in time the state must take back the land. She said she appreciates the division working with people, but she is concerned because this is a business. MR. PARSONS answered the division works very hard with its customers because it is a very generous program as far as the ability to enter into contractual obligations. He noted the state has taken steps over the past several years where it had an egregious contract holder that it couldn't bring back into compliance and the contract was cancelled and the state took back the land. The division tries to make that the exception as opposed to the rule. He said the division understands that the real estate is a business and the division can cancel the contract any time after an individual has been determined to be in default. REPRESENTATIVE TALERICO inquired whether the sponsor's intent is for people to be able to use the PFD, and the PFD only, to pay off the land purchase regardless of its cost. REPRESENTATIVE RAUSCHER answered that that wasn't quite in his intent. REPRESENTATIVE TALERICO recalled that he introduced a similar bill, but it was incredibly complicated, and those complications were probably why it didn't advance very far. He said he likes the simplicity of SSHB 3 and surmises the general idea of the bill is that there would be less cash flow out of state coffers as well as the ability to provide someone with equal or greater value for his/her permanent fund [dividend]. REPRESENTATIVE RAUSCHER replied he had many reasons for the bill. "It is just moving in computer numbers more than handwritten checks and contracts and payments and non-payments and default payments and all this other stuff," he said, so it did have an ease of that; I appreciate that." He said he realizes after listening to Representative Tuck and the answers he was given that it probably wasn't his intent to have both of them sitting side-by-side utilized. He said he will be offering a friendly amendment to page 2, line 10, to replace "and" with "or and that way [a veteran] can use the program he/she sees fit, if such an amendment is possible. 3:06:53 PM CO-CHAIR TARR opened public testimony on SSHB 3. After ascertaining no one wished to testify, public testimony was closed. 3:07:27 PM [HB 3 was held over.]